Common VAT mistakes foreigners often make in Vietnam

Value Added Tax (VAT) is one of the most common and important taxes in Vietnam's tax system. However, for foreign-invested enterprises (FDIs), individual investors, or foreign professionals, understanding and complying with VAT regulations in Vietnam can be quite complex.
Below are common mistakes that foreigners often make when dealing with VAT in Vietnam - along with tips to avoid them and ensure legal compliance while optimizing tax costs.

1. Not registering the correct VAT calculation method

Common mistake: Many newly established foreign companies in Vietnam fail to clearly register the VAT deduction method, leading to the application of the direct method (based on revenue) — which does not allow for input VAT deductions.
Consequences:

• Inability to claim input VAT refunds (especially critical for service companies or large investment projects).
• Limited tax benefits, resulting in increased actual costs.

Recommendation:

• Choose the credit method for VAT during business registration (submit Form 06/GTGT if required).
• Consult a tax advisory service to thoroughly review the initial registration documents.

2. Missing or invalid VAT invoices from suppliers

Common mistake: Using services, renting offices, or purchasing goods without requesting valid VAT invoices, or accepting invoices with incorrect information.
Consequences:

• The expense may be non-deductible or disqualified as a legitimate business cost during tax finalization.
• Risk of the tax authority rejecting the expense, increasing corporate income tax and reducing deductible VAT.

See also: Corporate Income Tax (CIT) in Vietnam: Tax Rates, Deadlines, and Reasonable Fees
Recommendation:

• Always request electronic VAT invoices with verification codes from suppliers.
• Double-check: tax code, company name, amount, and item/service description before making payment.

3. Failing to declare VAT on time (monthly/quarterly)

Common mistake: Due to unfamiliarity with local rules, FDI companies or foreign professionals often delay or incorrectly file VAT declarations.
Consequences:

• Subject to administrative penalties and late payment interest.
• Disruption in tax refund processes or other procedures (e.g., visa extension, investment license amendments).

Recommendation:

• File and pay VAT according to the correct reporting period (monthly or quarterly) based on revenue.
• Use accounting software and e-filing tools that include automated reminders.

4. Unaware of VAT refund eligibility for investment projects

Common mistake: Many FDIs with large initial investments fail to apply for VAT refunds, not realizing they are eligible.
Consequences:

• Missed opportunity to recover potentially billions of VND in input VAT.
• Financial strain during the initial setup phase.

Recommendation:

• If your business has not generated revenue yet and input VAT exceeds VND 300 million → eligible for VAT refund.
• Submit VAT refund applications every 3–6 months to optimize cash flow.

See also: Hiring an internal accountant or using an external service: Which option is suitable in Vietnam?

5. Not paying foreign contractor tax (FCT) on overseas services

Common mistake: Using services from foreign companies (e.g., advertising, software, design, training) without declaring and paying FCT, which includes the VAT portion on behalf of the supplier.
Consequences:

• Risk of penalties, tax arrears, and loss of input VAT deduction eligibility.
• Complications in transferring funds abroad.

Recommendation:

• Carefully review all contracts with foreign elements to determine FCT obligations.
• Ensure timely payment of the VAT portion of FCT and maintain complete supporting documentation.

6. Using ineligible expenses for VAT deduction

Common mistake: Cash payments without proper documentation, outsourced work without contracts, or invoices from "ghost companies."
Consequences:

• Ineligible for VAT deduction, with potential accusations of tax fraud.
• Damaged reputation with tax authorities or banks.

Recommendation:

• Work only with legitimate, registered suppliers who issue valid invoices.
• Avoid large cash payments - use bank transfers instead.

Handling VAT in Vietnam isn’t overly complicated, but it requires a clear understanding of local regulations and strict compliance with procedures. For foreign businesses or FDI startups, even small mistakes can lead to significant financial losses and harm credibility with authorities.
Are you a foreign-invested company, an individual investor, or an expat expert in Vietnam? Reach out to Zora Consulting - a trusted advisory firm specializing in tax, accounting, and localization for international businesses in Vietnam.